Thursday, 14 September 2017

Centre for Research and Analysis of Migration (CReAM) at University
College London

When I was business secretary
there were up to nine studies that we looked at that took in all the academic
evidence. It showed that immigration had very little impact on wages or
employment. But this was suppressed by the Home Office under Theresa May,
because the results were inconvenient.

Vince Cable, leader of the Liberal Democrats, in a statement on
September 6.

There is quite a lot of
evidence that if we have too many low-skilled workers coming in, one of the
effects is to depress the wages of those at the bottom end of the wage scale.

Damian Green, first secretary of state and minister for
the Cabinet Office, speaking on
BBC Radio 4’s Today programme on September 7.

Some
studies have pointed to the possibility of effects on the distribution of
wages, holding wage growth back at the lower end and pushing wages up at
the higher end. However, authors of studies which have suggested this have
emphasised that the negative effects are small.
While recent immigrants as a whole have typically been highly qualified relative
to the skill level of the UK labour force, the location of such effects may
have to do with the fact that they tend to work initially in lower
paid jobs.

One exception, sometimes
cited by advocates of tighter immigration policy, is a 2012 Migration
Advisory Committee report that
found some association in particular of non-EU migration with employment of
non-immigrants during one period of downturn, though the study itself
emphasises that the
evidence is not
very robust.

Overall the Migration Advisory Committee itself concluded:
“Evidence to date suggests little effect on employment and unemployment of
UK-born workers, but that wages for the low paid may be lowered as a result of
migration, although again this effect is modest.”

Impervious political debate

Despite the weak evidence, harmful labour market effects
continue to be emphasised in political debate, for example by Theresa May both
when she was home
secretary and now as prime
minister. (The same is true in
the US).

Some may feel it is obvious that the expansion of labour
supply that follows from immigration must harm competing workers. But this
ignores the many ways in which immigration can also lead to expanded labour
demand – through immigrants’ spending on goods produced locally, through the
complementary skills they bring into the country, through encouraging changes
in the pattern of production or encouraging inflow of capital, and so on. For
all of these reasons, it is quite compatible with standard economic theory to
find that immigration might have little
or no effect on wages or employment.

Verdict

Vince Cable’s understanding of the preponderance of academic
evidence on the labour market effects of immigration is accurate. There is
little persuasive evidence that immigration has substantial harmful effects on
average UK wages or employment. Damian Green is correct to identify effects on
the least well paid as being of greatest concern but evidence suggests these
effects are not large.

Review

Jonathan Wadsworth, professor of economics at Royal
Holloway, University of London

According to standard economic textbooks, the purported
effects of immigration on the existing workforce are undoubtedly negative –
like the minimum wage. How so when the academic evidence – as accurately
outlined in this fact check – does indeed suggest that, contrary to standard texts,
immigration does not have any large significant effect on employment either in
aggregate or among groups supposedly most at risk? Nor does immigration appear
to depress wages of native-born Britons much. The recently resurrected study,
cited by politicians and the media could not determine whether its findings of
a small negative wage effect apply to UK-born people or immigrants or both.

Politicians and the media making disingenuous, selective or,
at best, misinformed interpretations of academic studies do not help. There is
also a lot of dross out there and sifting through it is not always easy, for
anyone, politicians and the media included. Ultimately, continued dialogue and
engagement between academia and the outside world can only help understanding
and inform policy making.

Ian Preston is the Deputy Research Director of CReAM and
Professor in the Department of Economics at UCL

To be precise, Brexit is forecast to lead to a cumulative £59 billion more in public
sector borrowing over the next five years – £16 billion of
which is attributed to the effect of reduced migration because of the
unfavourable balance between its effects on tax revenue and government
spending. Whereas the negative impact of other Brexit factors peaks in 2018-19,
the effect of migration is forecast to still be rising by 2020-21.

What will happen to
migration

The likely fall in migration is difficult to quantify, given
the uncertainty about Brexit negotiations.
As a result, the OBR’s approach to capturing it is necessarily rough and ready.

This reduction falls some way short of meeting the
government’s stated aspiration of cutting net migration to the tens of thousands,
so it may be that the fiscal consequences of Brexit are being substantially
understated. On the other hand, that target is politically contentious and
widely viewed as impossibly ambitious.

The deleterious effect on the revenue side is easiest to
understand. The lower population means less economic activity on which taxes
are paid. Given that migrants tend to be younger than the average UK citizen,
the OBR also predicts that fewer migrants coming in will lead to a decline in
the employment rate, which reduces tax revenue further.

Because the inflow continues at the lower level year after
year, the effect on the population builds up, which is why the annual effect on
tax revenues continues to grow.

In its supplementary set of tables, published on December 8,
the OBR explains that about half of the reduction comes
through lower income tax and national insurance contributions and about a
quarter through lower consumption tax receipts such as VAT. By 2020-21, the
cumulative fall in tax receipts is
forecast to have reached £17.3 billion. This is much the most important factor
driving the increase of £16 billion in forecast borrowing by that year that the
OBR attributes to lower migration as a result of Brexit.

Not much change to
spending

On the expenditure side, things are more complicated.
Welfare spending is treated as sensitive to migration because benefit claims
are affected by the size and composition of the population, albeit that average
welfare spending on migrants is lower than in the population as a whole. By
2020-21, cumulative welfare spending is forecast to be lower by
£2.1 billion as a result of the lower migration. Offsetting this is an increase
of £0.6 billion in debt interest spending as a consequence of the lower tax
receipts.

But the largest part of spending – on public services such
as education, health, police, defence and so on – is treated as fixed by prior
plans. The OBR assumes that reduced migration will not lead to cutbacks in
spending on these items over the horizon it considers.

Of course, migrants are entitled to use public services even
if, contrary to popular perception, there is little evidence that
they make excessive demands. So the OBR’s projected reduction in numbers of
migrants without any change in planned spending means that pressure on those
public services is implicitly being allowed to diminish somewhat. Falling
population numbers are not being matched by commensurate spending cutbacks on
these services and the projected increase in borrowing cannot therefore be
straightforwardly interpreted as the cost of the migration changes. What the
OBR is doing is making a forecast for borrowing, not evaluating the cost of
lower migration after Brexit.

Their calculations suggest that recent migration to the UK
from the European Economic Area (EEA) over the period 2001-2011 benefited the
exchequer by about £22 billion – with taxes paid exceeding spending costs
imposed by about 34%. Over the ten-year period which they consider, EEA
immigration expanded the economy by about 7m immigrant-years – calculated as
about 1.4m immigrants each being in the country for an average of about five
years. The net benefit to the exchequer was therefore of the order of £3,000
per additional immigrant, per year (in 2011 prices).

To compare, the OBR forecasts an increase in borrowing of
£16bn over 2016-2021 for about 1.2m fewer immigrant-years. This suggests a
forecast impact on borrowing of about £13,000 per missing immigrant per year.
This is a significantly higher figure – but that is because it is an answer to
a different question and evaluated over a different period coming after a
decade of output growth and rising prices. Between 2011 and 2021, the OBR
forecasts nominal GDP to rise by about 40%.

Its projections also allow for no changes in the composition
of migrants. If low-skilled migrants are more discouraged by Brexit than
high-skilled migrants, say, then the fiscal consequences might be less pessimistic since
the discouraged migrants would have paid less in taxes. However, the reductions
needed to bring the government near to its target of net migration in the
tens of thousands would need to cover more than the
low-skilled.

International migrants are on the whole the sort of
productive, economically motivated individuals that governments ought to be
keen to attract. Making the country a less welcoming place and adding
bureaucracy to economic relations with its nearest neighbours is not a promising route to
attracting the most fiscally lucrative migrants.

Ian Preston is the Deputy Research Director of CReAM and Professor in the Department of Economics at UCL

Wednesday, 1 June 2016

MW has extended our analysis of the fiscal impact of
immigration to the UK (Dustmann and Frattini 2014) to fiscal year 2014, a year
for which the data were not available when we wrote our paper. However,
while they claim to replicate our analysis in most points, they only consider
that specific year, rather than computing the cumulative fiscal contributions
of all immigrants who arrived since 2000, as we did.

It should be noted that the idea of our paper was to compute
the contribution of EEA immigrants (A10 and “old Europe”) for those who entered
the country after 2000, and up until the end of the data window (which was 2011
for our paper). We believe that this calculation answers the key policy question,
which is “What is the net fiscal contribution of immigrants who arrived in the
UK since year 2000 up until today”, or “What is the net fiscal contribution of
immigrants who arrived in the UK since year 2000 up until today, relative to
natives”. In that way, we capture entire entry cohorts of immigrants up until
the present day.

What MW did was just choosing one year only – 2014. This
tells us the rate at which the cumulated contribution of immigrants is growing
in 2014 only. This is certainly a less interesting question than the
question we pose. For that particular year, they show that EEA immigrants who arrived
since 2000 make a roughly neutral net contribution. It
would remain true that the cumulative contribution over the last 15 years
must be positive. It should also be noted that the net fiscal
contribution of EEA immigrants even for that one year is still higher than that
of natives. In fact, MW estimates that in 2014 natives contribute to the
Exchequer about 85% of what they cost, thus making a substantial negative fiscal contribution.

A couple of additional points are worth noting.

1)The central scenario analysed by MW is one where
recent immigrants are assumed to make no contribution to corporate taxes.
However, as we discuss in our study, the allocation of corporate taxes and
business rates raises complicated questions of incidence. The fact that businesses write the cheques
does not mean that the burden do not fall ultimately on consumers or workers. In
fact, there is a literature in economics that suggests that it is workers and
consumers who ultimately pay the major share of such taxes, if not all. Our
analysis was taking no stance on this debate, apportioning capital and corporate tax payments, net of
the percentage likely to be paid by foreign shareholders, on a per capita basis
among the adult population. When MW adopts this assumption, which we believe is
more realistic and grounded in economic evidence, they find that recent EEA
immigrants have made an overall fiscal contribution of £1.5 million in 2014.

2)MW emphasise in their study mostly their results
for the entire resident immigrant population in the UK in 2014. As we have made
repeatedly clear, in our paper and in other comments, this is a figure that is
extremely difficult to interpret, and it is not clear what question it answers.
It reports the contribution at one point in time of a very heterogeneous
population of immigrants, many of whom have entered several years or even
decades ago, and any contributions they may have made earlier is ignored. Moreover,
a substantial fraction of immigrants who arrived at some time in the past have
returned to their home countries by 2014, after possibly spending their most
productive years in the UK and contributing to the fiscal coffers. We believe
that this figure is therefore not very informative.

Friday, 27 May 2016

Centre for Research and Analysis of Migration (CReAM) at
University College London

There is an increasing focus on migration in the build up to
the EU referendum. It is arguably the key issue which Leave advocates feel
confident of having majority support on.
And headlines that proclaim migration to be nearing a “record high” fuel
the Brexit campaign’s calls to quit the EU and end the commitment to free
movement of labour.

As the last release of migration statistics before the
referendum, the latest quarterly figuresfrom
the UK’s Office for National Statistics assume heightened significance. While
they largely confirm what we already know, it is worth looking at some of the
detail.

Estimated net migration remains
historically high. The latest figures show a slight rise, although not by a
statistically significant amount. The figures released are not a comprehensive
count of everyone who has come and gone, but an estimate based principally on a sample
survey conducted at points of entry and exit.

They are therefore subject to sampling variation and the
magnitude of the recorded change is within the range statistically compatible
with no actual change from the previous quarter. There is nothing new therefore
to get excited about in the headline figure.

The long-term annual net migration figure of 333,000 is the
difference between a gross inflow of 630,000 people and an outflow of 297,000
people. So people are arriving at roughly twice the rate at which they are
leaving. What change the figures do record is a consequence of a fall in emigration (though
still statistically insignificant) rather than of a rise in immigration.

This illustrates a point that rises in net migration can be
as easily a result of fewer individuals leaving as of more coming. Is
insufficient emigration what worries those upset by migration numbers? It seems
unlikely.

A closer look at the
numbers

The Brexit debate is focused more on migration from within
the EU than immigration from outside and the ONS figures are also illuminating on this.
Net inflows of EU citizens (other than the UK) and non-EU citizens are very
similar: 184,000 and 188,000 respectively. So are the gross inflows, 270,000
and 277,000. Whether measured net or gross, EU immigration therefore accounts
for about half of the total.

The statistics show that work is the most common reason for
immigration, accounting for 308,000 arrivals, 58% of whom had a definite job to
go to and the rest arriving with the intention of looking for work. Many more
of these were EU citizens (61%) than were from outside the EU (24%). The number
is currently rising.

By contrast, the numbers arriving for study fell from
191,000 to 167,000 and these were mainly from outside the EU (72%) rather than
from inside (23%). The number of those coming to accompany or join others, for
example for marriage or family reunion, were smaller than either labour or
student migration at 73,000.

The number of asylum applications, despite its prominence in
much discussion, was lower than any of these, although rising – about 42,000 in
the year to March 2016, with about 12,000 applications granted over the same
period.

An ill-judged aim

The headline figure of more than 300,000 net migration is a
continuing embarrassment to the government because of its aspiration to keep this below 100,000. Obviously, they
are nowhere near to achieving that, but to many there is something seriously
ill-judged in the aim itself.

A net immigration target is a target for the difference
between two large numbers – immigration and emigration – only one of which the
government has any ability to control. Furthermore, its influence even over
immigration is diminished by the EU commitment to free movement of labour,
particularly when half of the gross inflow is EU citizens, largely coming to
the UK to work.

The economic case is therefore clear – immigration has not
been bad for the UK. But even voters who think it has should be wary of
believing that Brexit would allow Britain to withdraw from freedom of movement
without other high economic costs.

Ian
Preston is the Deputy Director of CReAM and Professor in the
Department of Economics at UCL.

Sunday, 20 March 2016

Centre for Research and Analysis of Migration (CReAM) at
University College London

Migration brings net
gains to the UK, and to hamper it would likely be as bad for British nationals
as it would be for EU migrants.

Freedom of movement is at the core of arguments over Brexit.
Not everyone in favour of Brexit is against free movement but polling evidence
suggests that concern about immigration is strongly linked to support for EU
withdrawal. Among the most common reasons given for voting Leave is the
suggestion that it will restore British control over labour migration from
European sources. By removing the country from the obligation to honour free
movement of workers, it is suggested, it will make it possible to selectively
and advantageously discourage immigration of less attractive sorts of workers.

Many have argued plausibly that the supposition on which
this is based is questionable, that it will be impossible to negotiate
continued access to European markets for British goods and services without
also accepting continued free movement of labour into British markets. Indeed
the delinking of different dimensions of free movement would not be
straightforward, even if it were desirable. Free flow of services and free flow
of individuals delivering those services are not easily separable, for example:
you can’t engage a bricklayer’s services unless they are allowed to come and
lay the bricks. If all of this is true, then British withdrawal would simply
dilute British influence over the rules of free movement.

These sorts of points, convincing as they might be, are not
what I want to concentrate on here. Instead I want to question the idea that
separating Britain from the free movement of labour within Europe would be
economically beneficial even if it were feasible.

From an economic point of view, mobility of labour is
advantageous in many respects. Allowing workers to move where they are best
rewarded is helpful to productive efficiency. It means that, when skill
shortages arise, firms can recruit widely and workers can supply labour where
their particular abilities are most in demand. British firms benefit, just as
do firms in other countries, from being able to recruit from a broader pool for
the particular skills needed in their operations. At the same time British
workers gain, just as do workers in other countries, from access to a broader
pool of possible employers.

Free movement also provides insurance against local labour
market fluctuations. When there is a downturn in one region and a boom
elsewhere, flows of workers between them can dampen the effects. Judging this
by the economic circumstances of a single point in time gives a poor guide to
the long run benefits this brings. British workers stand to gain from this when
British labour markets are weak just as do workers in other countries when conditions
suit movement for them.

The main benefits of free labour movement accrue, of course,
to migrants themselves (including British-born migrants) who can enhance their
incomes substantially by moving to where they are most valued. Some of
those gains are captured in the receiving country through taxes paid on and out
of migrants’ incomes. But the non-moving population may also see their own
incomes change as a consequence of the movement of foreign labour and any
movement of capital associated with it. If the possibility of employing
immigrants keeps firms in the UK, for instance, then that may generate or
prevent the loss of employment for British-born workers. Wages of non-movers
may also be affected and some may gain and some may lose. Those whose skills
are complemented by those who arrive and those who were competing with them in
the areas they leave are most likely to gain, while those who compete most
closely with them where they arrive and whose skills were most strongly
complemented where they left are most likely to lose. Economies have many
long-term and short-term ways to adjust which will damp these effects down,
perhaps even to zero. And these effects do not just take from one person to
give to another – the overall average wage effect on workers other than the
migrants themselves may be positive. But if the harmful impact were to be
concentrated on the less affluent then that would be a legitimate reason to
worry.

So what does the evidence say? In the UK it suggests that
migrants tend to work initially for pay well below that which might be expected
given their qualifications if they had been locally born, presumably because it
takes time to learn local skills such as command of the language and to embed
themselves into local labour markets. To the extent that it is possible to
identify negative effects on wages of locals – by comparing outcomes in parts
of the country with different migrant inflows – these appear to be strongest
exactly in the part of the wage distribution where migrants seem to be working,
which is to say at lower wages. Nonetheless the effects are small, suggesting
that the ability of the economy to absorb immigration without compromising the
wages of the hardest hit is reassuringly strong. Moreover, any losses appear if
anything to be more than balanced by gains to others, and those gains could be
spread around if the political will were there to do so.

Why might the average individual in the receiving country
gain? Maybe migration spreads ideas and encourages innovation. Letting
innovators move to where their ideas can be developed may be important to
economic dynamism and as entrepreneurs move they expose those with whom they
work to new ideas. There is not much evidence on this for the UK but there is
tentative evidence elsewhere that migration is associated with innovation and
entrepreneurship.

Furthermore, freedom of movement allows certain industries
to maximise their productivity by allowing for the build-up of a workforce in
certain localities. Again this is something generally beneficial. One context
in which this may be true, for example, is scientific research. Knowledge
spillovers from concentrating the best minds in disciplinary specialities in
the same place may be substantial, something reflected in the international
composition of university departments and research laboratories.

Furthermore since benefits from research are largely public,
enduring, and enjoyed in common, it makes sense for public funding to play a
large role and much of that funding is at the European level. The wisdom of
cutting the UK off from participation in such arrangements under the hope that
the desirable outcomes could somehow be replicated through negotiation and
newly formulated visa rules is questionable.

The question of
benefits

Perhaps the strongest case for worrying about the possible
implications of free movement regards its interaction with the public sector.
There are well-established arguments within economics that suggest the
redistributive functions of government should happen at the highest possible
geographic tiers, not only because that allows addressing a wider range of
inequalities but also because it means that migration between lower tier
jurisdictions cannot unravel the effects. If one jurisdiction provides more
redistributive services, especially if entitlement to use them has no past
contributory basis, then the possibility that that will attract the neediest
migrants from other jurisdictions could compromise sustainability. Since
European social provision is principally a national responsibility, concern
that free movement could compromise social programmes has to carry some weight
in principle.

But evidence to support the seriousness of these concerns is
again lacking. From what we know, migration is motivated principally by work
and movers to the UK contribute positively to the exchequer at a time when
there is an overall fiscal deficit. Migrants are no more unhealthy and no more
criminally inclined than the British-born, and they tend to arrive already
educated. Of course if they stay then they will age and eventually draw more
heavily on public services, but this is just to say they will eventually come
to be more like those already in the country.

Notwithstanding the evidence, the British government has
negotiated an agreement allowing for circumstances in which an extended waiting
period could be imposed on EU migrants before they could claim certain
benefits. The agreement reached has been widely derided by advocates on the
Leave side, who point out that even those wanting to remain accept that it is
unlikely to affect migration levels. But this ignores the fact that those who
believe this do so precisely because they never believed that welfare tourism
was a problem in the first place.

The benefits of free
movement

Free movement of labour has positive economic effects and if
we restrict it we become worse off on average. But it also brings with it
some disruption and there may be some who lose from it. The role of government
should not be to prevent free movement and in doing so lose those gains, but to
see that the long term benefits are enjoyed widely and the negative effects on
those whose lives may be disrupted are recognised and addressed.

A continent of walled-off labour markets with governments as
gatekeepers arbitrating movement of workers between them would be less
productive, less flexible, and less dynamic. In economic terms, a vote to begin
erecting those walls would be a vote for a step backwards.

Ian
Preston is the Deputy Director of CReAM and Professor in the
Department of Economics at UCL.

Thursday, 8 October 2015

Centre for Research and Analysis of Migration (CReAM) at University College London

The evidence – from the OECD,
the House
of Lords Economic Affairs Committee and many academics – shows that
while there are benefits of selective and controlled immigration, at best the
net economic and fiscal effect of high immigration is close to zero. So there
is no case, in the national interest, for immigration of the scale we have
experienced over the last decade.

Evaluating the home
secretary’s claim requires recognising that the economic effects of immigration
have several dimensions. Although she says the overall impact is close to zero,
she bases that on several specific claims.

The first point of
concern is how immigration affects the labour market. It is easy to tell anecdotes about
how immigration harms job prospects in receiving countries – but this can be
misleading. Immigrants compete with similarly skilled workers but they also
create demand for jobs by spending their income. Just like other forms of
population growth, economies absorb immigration in many ways: importing
capital, adjusting the composition of goods produced, adjusting training and
technology.

The effect on wages
has been heavily researched in
many countries and evidence of large effects has indeed been difficult to find.
There are exceptions,
but the predominant conclusion is that immigration does not harm wages or
employment.

Elsewhere in her
speech, May contests this. She admits that migration can help “plug skills
shortages” and bring talent in but makes specific negative claims about low
wages and employment. She says that “we know that for people in low-paid jobs,
wages are forced down even further while some people are forced out of work
altogether”. More strongly, she argues that “there are thousands of people who
have been forced out of the labour market, still unable to find a job.”
Immigration control is needed: “For the sake of the people whose wages are cut,
and whose job security is reduced, when immigration is too high.”

What happens to wages

What we do know
about immigration
to the UK is that immigrants are, on the whole, well-qualified but
nevertheless tend to work initially in less well-paid jobs. There is some
evidence from comparisons across regions that wage changes and
immigration are most strongly associated in those jobs where immigrants work in
the early years after arrival.

This could provide
some justification for claims about wages – but it is subject to caveats. The
effects are very small and immigrants move up to higher paying jobs the longer
they stay so it is likely that such effects will disappear over time.
Furthermore, there are counterbalancing wage gains in parts of the labour
market where immigrants are not found and these more than compensate overall.
On average, if wages gain from immigration then it ought to be possible to
compensate those who lose and to
benefit collectively.

As regards effects
on employment, no convincing evidence exists to support the claim that
immigration depresses it. Several studies have failed
to find an effect.
Work from within the government’s Migration Advisory Committee found
evidence of association between one sort of migration in one period
and changes in employment but the report in question is itself careful to point
out that it is not
very robust.

So overall, it’s
possible to argue that the effect on the labour market of high immigration is
small but not to support some of the other claims made about the labour market.

Positive effect on public finances

A second aspect of
economic effect is the effect on the public sector. What we know here is that
in the ten years since 2001 the best evidence, trying to account
comprehensively for effects through all taxes and all components of public
spending, is that migration impacted
public finances positively, particularly migration from within the EU but
also from outside. This was at a time of overall fiscal deficit when the
average British-born person was contributing negatively, as the graph below
shows.

Whether this effect
is “close to zero” or not depends what it is being compared to. As a fraction
of the overall deficit over the period it is small but on a per-immigrant basis
it is more impressive. This is just the short term impact and a fuller
assessment would need to look to the long-term when young, healthy,
working immigrants will age, some possibly return to places of origin, and some
bring up children whose taxes will contribute.

The home secretary
also mentioned effects on specific services, claiming that:

when immigration is too high, when the pace of change is too fast, it’s
impossible to build a cohesive society. It’s difficult for schools and
hospitals and core infrastructure like housing and transport to cope.

The home secretary
finished her speech by concluding that “there is no case, in the national
interest” for large scale immigration. A full evaluation of this claim would
need to take account of other aspects to the economic impact about which
evidence is thinner. The economic case is not based so much on the scale of
migration as perhaps on limiting migration restrictions which prevent firms
from searching widely for skills and workers moving to where there are jobs. There
is some suggestive and plausible evidence, largely from outside the UK, that
immigration promotes innovation,
entrepreneurialism and trade in
ways that will boosts growth.

Verdict

It is true that the
labour market impacts of immigration on British-born workers are plausibly
close to zero – but that contradicts claims made elsewhere in the home
secretary’s speech. Fiscal effects, on the other hand, at least in the short
term, are not close to zero but positive. A full assessment of economic
arguments for immigration would have to go beyond these effects.

Centre for Research and Analysis of Migration (CReAM) at University College London

Ian Preston Deputy
Director of CReAM and
Professor of Economics at UCL, puts forward the case for freedom of movement
within the European Union. He explains how freedom of movement and economic
migration is important for a dynamic and innovative economy, but it also brings
with it redistributive considerations that cannot be ignored. At a time when
many politicians conflate economic migration and asylum-seeking refugees, he
argues that the two are perhaps not entirely distinct from one another – and
discusses reasons why they shouldn’t be treated as one group.

Some economic
advantages of free movement of labour

Free movement of labour, in the sense of absence of
restriction on European citizens’ rights of location for the purpose of work,
has been a longstanding goal of the European Union. But this goal has come
under increasing attack, from a variety of directions. Critics include not only
those hostile to European Union membership but also some who are professedly
sympathetic to membership but who appear sceptical about the benefits or long
term viability of unrestricted cross-border mobility of people in modern
Europe.

Judged in economic terms, the case for free movement of
labour, within or between countries, is strong since mobility of workers has
compellingly positive aspects.

From the point of view of efficiency in production, free
movement allows workers to migrate to where their skills are most useful. If
particular industries are geographically concentrated or face local skill
shortages then they can recruit labour from a wider area. If workers have
talents which are undervalued where they live then they can move to where they
can be put to better use. High wages in locations of labour shortage will offer
the necessary signals to draw the migration required, allowing migrants to
capture part of the social gain from improved production.

From the point of view of social protection, free movement
provides insurance against locally specific labour market shocks. If demand
intensifies unexpectedly in an area then labour can move in. If demand falls
within an area then labour can move out. The effects of temporary disturbances
are dispersed and variations in labour income are smoothed. When monetary
integration of different areas removes the possibility of macroeconomic
adjustment through exchange rate movements the importance of labour mobility as
an adjustment mechanism is even greater.

From the point of view of growth, free movement allows ideas
to spread as people move so that innovators can work close to where their ideas
are most valued and innovations are therefore adopted widely. As they do so,
fresh encounters generate further new ideas.

From the point of view of efficiency in public provision,
free movement allows better alignment of tastes and public service levels. If
individuals differ in preferences for the type or level of locally publicly
provided goods then free movement allows a better matching of wants and
provision. Individuals who are prepared to pay higher taxes for better services
can move to localities where this is offered and those less interested can move
to areas with lower provision. Public sector economists recognise this as one
way that a sort of invisible hand can work to a limited extent even where goods
are collectively consumed and therefore best provided through the public rather
than private sector. Of course, much public provision is of privately consumed
services and considerations here are more complex, as discussed below, but the
point is not eliminated.

For all of these reasons, “economic migrant” has never been
a pejorative term among economists. On the contrary, economic migration is seen
predominantly as a force for good.

Some economic
drawbacks of free movement of labour

Even outside circles of economists, considerations of this
sort are taken for granted as regards migration within a country. It would be
considered absurd and economically unwise to propose limitations on movement of
British workers from Birmingham to London. And yet, at the supranational
level, limitations on free movement within Europe are argued for and thought to
attract political support.

Why? In large part, this is because the politics of
migration is not about economics. Economic migration drives social change which
attracts strongly different reactions from the culturally conservative and the
socially liberal. Population movements are swelled by humanitarian crises which
draw sympathy differently in different parts of the population.

Nonetheless, even in economic terms, free movement is not
popular. Partly this may be because, despite persuasive reasons to think
the better geographic distribution of labour that results is a good thing on
average, not everyone gains. The principal beneficiaries are migrants
themselves who move because they can earn better wages where they go to than
where they come from. The picture for nonmigrants is likely to be mixed —
beneficial undoubtedly for some but potentially difficult for those competing
most closely with incomers or whose productivity would have benefited from the
presence of outgoers. The best evidence suggests that such effects are small
and probably temporary but they are what matter to the immobile and the
immobile both outnumber the mobile and are politically better represented.

This is not the biggest economic issue though. Perhaps most
prominent among the economic fears of what migration involves in practice is
the concern that what prompts movement between countries may be exploitation of
differences in generosity of welfare systems and other redistributive parts of
public spending. Migrants, it is argued, arrive in richer countries to
claim benefits to which they have not contributed, and to draw on health and
education systems for which they have not paid.

Such problems rarely arise from movement within countries
because, sensibly, redistributive functions are typically centralised. There is
no different welfare system in different parts of the UK and resource
allocation formulae attempt to channel funds for provision in kind fairly to
different parts of the country. This is as it should be. While there can be
advantages to differing local provision of goods consumed in common, as argued
above, privately consumed services with a redistributive aspect cannot be
decentralised without threatening to generate potentially self-defeating
movement of people. Reasons would be created for those most in need to
move to the most generous areas and for those most able to pay to move away,
defeating the feasibility of effective redistribution.

No similar centralisation of redistributive activities is
politically feasible at the European level because insufficient cross-border
social solidarity exists relative to the inequalities that would need to be
addressed. So redistribution remains largely a country-level function and fears
that differing national levels of generosity will prompt migration flows
generate calls for limits on migration. Benefit tourism is one side of this
just as tax tourism by the affluent is another; though rarely discussed
together and attracting the ire of different people, they are really similar
economic phenomena, just different kinds of redistribution shopping. Associated
hostility to migration can cross the political spectrum. Fears that the
national social solidarity that sustains what redistribution can be afforded by
national governments will be undermined by free movement creates a left-wing
case for concern.

These observations have some force at an abstract level. But
they are no reason to pretend that the benefits to free movement detailed
earlier do not exist and are not substantial at a European level. Also, their
practical importance is an empirical question. To what extent do we actually
see welfare-seeking labour migration? Evidence is tenuous. Migrants are, on the
whole, predominantly young, well educated workers. At least in the short term
and over recent years, within EU migration has, for example, benefited the UK
fiscally even at a time of deficit when the average British born worker has
been a fiscal burden. EU migrants to Britain are less likely to claim benefits,
no more likely to use public health, no more likely to commit crime, and do not
compromise the education outcomes of native speakers. This is not the full
picture since that has to take account of long term implications as young
migrants age and impose future costs on welfare and health services. But some
of them will return to their place of origin and those who stay will raise
children who will pay towards their costs so there is no obvious reason not to
expect gains even considered in the long term. This positive picture is not a
necessary outcome and may not be true for all receiving countries; however, the
strength with which these concerns are voiced in the UK, for example, bears
little relation to any strength of evidence for them.

Because concerns about welfare tourism do seem so strong, a
case can be made for putting time limits on benefit claims by migrants,
enforcing a minimum period of residence before migrants can draw on certain
parts of benefit systems in countries of destination. What would be
positive about this would be that it might assuage concern that threatens to provoke
policy responses which would undermine real economic benefits. If migration is
indeed not largely benefit-driven then it should do little to reduce flows. The
economic cost though is that it would mean social insurance would be denied to
those moving for work.

Free movement and
refugees

The political threat to the future of free movement predates
the current refugee crisis but has been exacerbated by it. Open borders
within the Schengen area have already been temporarily suspended by countries
struggling to manage the sudden size of the flows of people and doubts about
whether free labour mobility is sustainable are voiced even more loudly.

Decisions about the offer of asylum are governed, or should
be, by international humanitarian obligations. It is not clear that accepting
refugees need in any case be economically harmful. While past effects of
immigration may be a poor guide to the labour market and public finance impact
since refugees’ characteristics may differ from previous flows in ways difficult
to predict, there seems little reason to expect entrepreneurialism, initiative
and preparedness to work to be any lower than in past inflows. The notion that
the economic calculus of benefit receipt might suddenly be drawing large
numbers to undertake life-threatening boat crossings so as to exploit European
welfare systems also seems far-fetched.

Nonetheless the handling of short term difficulties of
sudden large flows raises questions about free movement of refugees. Confining
refugees to the first safe country which they reach, whatever its legal basis,
ties the short term costs of receiving large numbers to accidents of geography.
If those countries receiving heaviest flows in the first instance are also
those facing greatest current economic difficulties then the costs are made to
bear most heavily on those least well-prepared to cope. A system of
country-specific quotas is a popular idea for spreading the burden of
adjustment in the short term but can only work as intended if restrictions on
refugees’ subsequent mobility prevents movements which unravel the quotas.

Yet all the economic arguments made above for allowing long
term free movement apply. Allowing refugees to choose to go to where they can
best find work, where their skills and competences are most valued and where
they expect to feel most welcome harnesses refugees’ own wish to find the best
lives for themselves and their families to best economic advantage rather than
letting the most alarmist economic fears drive policy.

There is an unhelpful tendency of some rhetoric to contrast
refugee migration and economic migration. The suggestion that rigorous
discouragement of economic migration is the only way to accommodate a welcoming
policy towards those fleeing persecution should, for instance, be resisted. One
is not deserving and the other undeserving, as if seeking a better life is
politically tolerable only when the alternative is persecution. The potential
for economic migration to promote positive outcomes should be celebrated for
itself.

Ian
Preston is the Deputy Director of CReAM and Professor in the
Department of Economics at UCL.